Brian Pietrangelo [00:00:00] Welcome to the Key Wealth Matters weekly podcast where we casually ramble on about important topics including the markets, the economy, human ingenuity, and almost anything under the sun, giving you the keys to open doors in the world of investing. Today is Friday, October 24th, 2025, I'm Brian Pietrangelo and welcome to the podcast.
We've got somewhat of a light economic calendar this week, and we'll get to that data here in a minute. But on a fun fact day, we've got two things going on in the sports world. One, we got the NBA season, National Basketball Association season, which tipped off this week, as well as the Major League Baseball World Series starts tonight. So, if you like both of those sports, tune in. You've got some good quality interaction to take a look at. Also, to have a little fun today, October 24th marks National Bologna Day. And this is a meat, lunch meat, everyone's favorite, which is named after the Italian city called Bologna, but there they call it mortadella. American Bolognese is a little bit different, and in general, some people call it bologna. And also, if you go to those folks in Pittsburgh, they call it jumbo. Some like it fried, some like it with mayonnaise. Not sure what your preference is. But either way, a little bit of nostalgia. I'm not so sure how many kids are eating bologna sandwiches these days. But if they are, hope they enjoy them.
With that, I'd like to introduce our panel of investing experts here to share their insights on this week's market activity and more. And maybe if we have time later in the podcast, what their favorite sandwich is. George Mateyo, chief investment officer, Steve Hoedt, head of equities, and Rajeev Sharma, head of fixed income. As a reminder, a lot of great content is available on key.com/wealthinsights, including updates from our Wealth Institute on many different subjects and especially our Key Questions article series addressing a relevant topic for investors. In addition, if you have any questions or need more information, please reach out to your financial advisor.
Taking a look at this week's market and economic activity, the government shutdown continues as we enter day 24 of the shutdown and we'll continue to report on that as it is newsworthy. In addition, we've got Q3 earnings in full swing and we will get that update from Steve. That being the case, we’ve got three updates to share with you given the fact that some the reports are continuing to be delayed due to the government shutdown. First, the initial weekly unemployment claims have been delayed for the fourth consecutive week in terms of an actual report. That being the case, some of the state-level reporting that does feed into the national federal report has been evaluated and some people believe that there's not any type of spike that would cause concern even though that data is state- level.
And second, the National Association of Realtors provided the Existing Home Sales Report, which showed a 1.5% increase in existing home sales for the month of September at a 4.06 million rate. Now, this is slightly good news because if you look at a month-over-month report, the number kind of vacillates from a positive number to a negative number, probably for the last six months, so seeing an increase for this particular month in September is a positive momentum. And some of it might be due to interest rates declining a bit, and in anticipation of the Fed's meeting next week with another possible 25 basis point cut, they might be going down. But please consider the fact that the Fed funds rate usually controls the short end of the curve and not necessarily the long end of the curve. Even though it will be helpful, you've got mortgages around 15, 20, or 30 years, so it tends to follow the 10-year rather than the 2-year. So the Fed Funds Rate cut will be help but not necessarily a lot. Again, this is important because the activity has been fairly slow in existing home sales due to the lack of inventory because people don't necessarily want to sell their home and give up a 3% mortgage they had pre-pandemic to get a 7% mortgage they have post-pandemic. And so again, interest rates and inventory are crucial to existing home-sales.
And finally, the most important point of the week is the Consumer Price Index report that came out from the Bureau of Labor Statistics. And by the way, it was delayed since the fifteenth of the month was the originally scheduled date of October it was supposed to come out. It's been released today due to the Bureau of Labor Statistics coming back to the office to compile and produce this report based on the fact that it does have implications for Social Security Administration's cost of living adjustments. The report has some mixed news, slightly unfavorable but also slightly favorable. Net-net, I think the markets will take it as favorable. But the news is that on a year-over-year basis, it was up 3.0% in September for headline CPI, which was one-tenth above August at 2.9. However, it is lower than expectations. On the core side of CPI which excludes food and energy, it came in at plus 3.00% for September year- over-year, which was slightly down by one-fifth of a percent from August. So, again, good news headed in that direction. Now again, I mentioned this is generally probably going to be perceived as favorable and will be likely and used by the Federal Open Market Committee in their meeting coming up next week on the 28th and 29th with the press conference with Jay Powell on Wednesday the 29th. However, as we've talked about before, the Fed's preferred measure of inflation is actually PCE inflation, which won't come out until the 31st after the Fed meeting. So we'll take a look at this inflation as measured by CPI and take it for what it's worth. We'll hear from Rajeev on the anticipation of the Fed's meeting next week. But before we do that, let's get right to George to give his thoughts on what's happening with the government shutdown, other topics that are near and dear to his heart. Thanks, George. What do you have to think? And what do you think might be important for our listeners? George?
George Mateyo [00:06:00] Well, Brian, after a long hiatus, we finally did get some information on the government side of things. Of course, there's been a lot of non-government related data that has been released. So people have a pretty good sense of where things are, I think. But in terms of the official measurements, it's been, it's a void for quite some time since the government's been shut down some 20 plus days or so ago.
I think the headline of course is the inflation story. And it was a better expected report in the sense that we missed on the high side, meaning inflation wasn't quite as hot as people expected it to be. We can kind of see that in a number of different key indicators underneath the hood. Some important deceleration of kind of the sticky components of inflation that we talked about, like housing, for example. We've been waiting, many people have been expecting housing inflation to subside a little bit, and it did. So that was some good news there as well. Other things kind of saw some modest trends, you know, food inflation is still probably a little bit higher than people want it to be. And that's one thing that maybe the administration might have to contend with. But overall, I think the report was probably a little better than expected. And considering the fact that tariffs are still, as we think, kind of coursing through the economy, it's been kind of welcome news that they haven't showed up in the inflation side. I would say on the other side, though, is that maybe it seems like companies are not really passing through inflation as much as people expected. Which, again, is one of the reasons why inflation was a little bit less than people expected this morning.
But we're kind of seeing some other parts of the economy kind of process that tariff hit, in the sense that I've seen the last two days, many companies talk about layoffs. So they're actually kind of making that adjustment, perhaps, with respect to tariffs in other ways. And so that's one thing that I think we have to be mindful of, is that the sense that maybe yes, inflation isn't quite as high as feared. It's still a long way from the Fed's target. And Rajeev, I'll be curious to get your take on that, too. But right now, from the company perspective or the corporation perspective, it doesn't seem like that they're bearing much of that impact directly and instead are maybe finding other ways to adjust their cost structure in the form of layoffs, unfortunately.
And of course, also on the tariff side, it's interesting to see that we've seen in the last 24 hours or so, the administration talked more hawkishly about Canada, one of our most important trading partners. We'll see what that looks like and how that plays out over time. But then next week, I'm sure all eyes will be focusing on what happens in China, which of course is another big trade partner that has some significant implications too, as the president heads overseas to meet with his counterpart from China apparently. So overall, it seems again that the inflation story is a little bit better expected. The labor market, though, I think, is still some we have to contend with, and since maybe there's additional weakness there that's starting to build, the numbers haven't really kind of borne that out just yet, but anecdotally, in a way, the reports seem to be servicing. So altogether, I think Rajeev, it sets up for a pretty interesting week when we have the Fed coming back into focus next week. I guess, first of all, Rajeev, who's going to be at the Fed meeting, and what do you think they're going to have to do, and what are they going to say when they get together next week?
Rajeev Sharma [00:08:50] All very, very good points, George. I think, you know, everybody's gearing up for this Fed meeting next week. I think it's going to probably be a unanimous vote for 25 basis points of a rate cut. Uh, and I really do believe that the market is, is gravitating towards that. They have been gravitating toward 25 basis points. The fact that we weren't getting any economic data because of the government shutdown, uh, you know, it's still, it never took away from the notion that the Fed is going to be on autopilot with that rate cut next week, but with that CPI report that we got, It was a welcome news to bond traders and it points to, again, a green light for a 25 base point rate cut next week. It also supports the odds of another 25 base point grade cut in December. It's a done deal as far as the bond markets are concerned with 50 base points of rate cuts this year in addition to the 25 that we got in September.
But what I felt that was the most interesting thing is if you're looking at market expectations, a benign CPI report is not being questioned at all for quality of data. That was one of the concerns in the market. So would they really believe the data that's coming out right now? Or would they believe the quality of the data? That's coming up. Nobody's really questioning that. In fact, the market expectations have now shifted timing of additional rate cuts for 2026. The market now expects nearly four rate cuts next year by June. So the market's really getting aggressive here as far as how many rate cuts we can expect.
Who will be at that Fed meeting? I think the most important person would be Fed Chair Powell in his press conference. I think he's going to really have to walk the thin line. He's been doing it at the recent speaking engagements where he's been talking about, you know, we're going to focus on the labor market. And everything he's been saying has been really been pointing towards these two great cuts for this year. I think, he's gonna get asked a question about 2026 and where his outlook looks for that. Obviously, we're not getting another summary of economic projections at this meeting, to where we're going to get the dot plots, but. But I do think that the question will be asked at how many rate cuts for 2026.
Now the month of October continues to be a rally month for the bond market. It really doesn't matter this month for which part of the curve investors are in position for, but owning long bonds have been the winning trade this month. And yields have fallen at a faster clip on the long end of the yield curve versus the front end. The six month closing range of the two's tens curve has been less than 21 basis points. So if you are a yield curve trader, it's going to be very tough to continue to find value because yields have fallen so much in the month. But other risk assets, this move lower in yields has been very reassuring for other risk assets, whether it's the bond market or the equity market. Bond market volatility is very low. Credit spreads remain in a tight range. Liquidity is abundant. All of this supports the market rally.
September's inflation print hit the sweet spot for the market. It was just the right acceptable range. Anything lower than that would have questioned increased growth concerns, perhaps. If we would have had a higher CPI print, it would have reduced the odds of December 20 and the 2026 rate cuts. The market really believes the Fed is willing to let inflation run above their 2% target goal, focus more on the labor side of the mandate. And this market is moving on from this report now. They got what they needed today with the CPI. Now they're focused on the weekend trade talks, they're focus on any trade talks with China. You've got the FOMC meeting, as we mentioned next week, any queues from Fed Chair Powell's press conference. That's what the market's now focused on. And if you look at 10 year treasury note yields, we're hovering around that 4% mark. The 4% mark on the 10 year is a psychological mark that I think is very important to note. Anytime we go above that, you do see buyers stepping around 4.15% for the 10 year, anytime we go below 4%, you see buyers somewhat step away. So we're kind of hovering around that four percent point. I think we're going to be here in the near term.
George Mateyo [00:12:33] Well, Steve, if we kind of flip over to you for a second, it is interesting to see that with, with Rajeev’s outlook for the Fed being kind of at our back for a while, right? They’re likely to cut rates a couple more times this year and well into next year potentially as well. Earnings so far seem to be coming through, you know, the stock market seems to love all this. So at what point do you think Steve that valuations are going to start mattering again? Because we're getting close to the peak levels, at least this year's peak levels on S&P multiples.
Stephen Hoedt [00:12:59] Yeah, you're not wrong about the valuation argument, George. But we could’ve made the valuation argument three months ago, six months ago too. And the market has continued to work its way higher. So I think that we're aware of it and what the potential implications are for long-term returns. But near term, it's really hard to try to get in the way of this market between now and the end of the year, to be quite honest.
I mean, when you look at things. What we've seen over the last couple of weeks from my seat looks like a good old-fashioned October-style washout. You had two areas of the market that had been kind of frothy, for lack of a better way to put it, and precious metals, slash gold, and momentum stocks kind of come under pressure over the last two weeks. And yet we've still seen the market as of this morning on the CPI news move to a new all-time high. So I think that the market is through this kind of October washout now, and we're heading into what is very clearly the best seasonal period of the year between basically the 20th of October and the end of the year. So, hard to get in the way there.
And when you think about what the fundamental backdrop is, you've got the S&P 500 forward 12-month earnings line making new all-time highs as well as we're at new highs for stocks. And as we've said over and over and over, whether it's on this call or in other places, earnings higher equals stocks higher, and unless and until we see an inflection in forward earnings, which given the economic and Fed accommodation backdrop, it's really hard to make that case. That said, near term next week is really gonna be like the Super Bowl for earnings because we've got major earnings announcements coming out of the Mag-7 next week with Microsoft, Meta, and Amazon all reporting. And what they have to say is gonna be very important. It's gonna be important for the AI theme, which we all know has kind of been a key market driver for the year. But I'm focusing on some underlying things in terms of between now and year end, whether it's stock buybacks, an uptick in M&A, that kind of stuff that we've seen here over the last few weeks. And once you get past the inflection point of earnings season, you do get those corporate buyers to come back in. And you put that together with the strong retail bid that we got underneath this market. And I think that, again, we think between now and the end of the year, you don't wanna get in the way of it. You're gonna be fighting the Fed, which has never been a good thing, and you're gonna be on the wrong side of the trade into the end the year.
George Mateyo [00:15:53] So the other thing I think that's kind of interesting, Steve, and Rajeev, I think this might have some implications for you as well, is that underneath the surface of the overall market, we've seen a concerted flight to low quality, I mean, I think also a lot of stocks, I shouldn't say all stocks, but many stocks have done well this year. But it's kind of curious to me to see companies that have no earnings effectively appreciating at a higher rate and actually have done substantially better than companies that have earnings. So in other words, companies with pretty good fundamentals, or at least some fundamental underpinning are actually underperforming those companies that have no earnings per se. And I think that's an important distinction. I don't know if you think about that or if that kind of, I know that doesn't really factor into your calculus when it comes to thinking about stocks that you buy on behalf of a client, Steve, but have you kind of seen any kind of interesting things underneath the hood that give you pause or maybe some concern that some of these low quality companies are doing so much better from a stock performance perspective or is that just kind of where we are in the market in the cycle right now that we're in?
Stephen Hoedt [00:16:50] I mean, it's kind of funny, George, because typically the lowest quality stuff doesn't rally at a market peak. It rallies coming out of a cyclical trough, right? And that's kind one of these things that has been really confounding to investors coming out of the post pandemic period. And that is that every single kind of playbook quote unquote item that you used prior to the pandemic has not worked after the pandemic. And that's the case, whether it's using economic heuristics, such as yield curve inversion, foreshadowing, inflation, or stuff like low quality rallies out of a recessionary trough and high quality outperforms everywhere else. Like it's almost as if the world not only got turned on its head in the pandemic in our real life, but like the market has gotten turned on it's head too. It doesn't, I'm staring at my Bloomberg this morning and the S&P high quality index for the year is up 12.25%, and the S&P itself is up 15.75. So at the quality factor, just using those S& P headline indices is 300 basis points behind the market year to date. And when you look at factor like high beta: high beta is up 28.88%. So high beta is up almost double the market. So to your point, low quality, high beta, this kind of stuff, it seems to be where there's a lot of market action. That gives me pause for sure. But I do think that when I come back to that earnings line, there's fundamental underpinning for why the market is continuing to grind its way higher, even if under the hood. You know, it's been an incredibly difficult year for individual security selection because of those dynamics.
George Mateyo [00:18:46] Anything, Rajeev, that gets your attention along those lines, too? I mean, you're obviously a quality investor, or we think we're quality investors when it comes to securities inside the bond portfolio, too, the bond market. Have you seen a significant shift or maybe an inflection point between low quality, high quality inside the market?
Rajeev Sharma [00:19:02] Yes, I have. I mean, I do think that, you know, high yield has done very well this year. I think we've always been promoting high quality names for our clients. And I really do think that high quality does give you the installation that you need in this environment. The difference in the bond market is you're getting really good coupons for blue chip companies. It doesn't make a lot of sense to me to go down the credit spectrum to pick up. You're getting good income from those high quality names. I do feel, however, where you see high yield spreads are trading. And you see the makeup of those high-yield issuers, you know, they're not screaming any signs of any panic right now, but I mean, at 272 basis points to the high- yield market, it's pretty much priced for perfection. So, any kind of pick up and default rates or anything else would really throw that market for a loop. And so, I really do feel that right now we're focused on high quality. We don't really need to go down the credit spectrum.
Brian Pietrangelo [00:19:53] Pick up extra yield. Well, thanks everybody for your comments on the markets and the economy. And let's finish up with a little round robin on what your favorite sandwich is these days to give our audience a little bit of entertainment value. Mine is the Turkey Club. It's a well diversified sandwich. What about you, George, Rajeev, and Steve?
George Mateyo [00:20:12] Oh, I can't turn down a good turkey club or a good Reuben once in a while, Brian, but I think my go-to is probably more traditional and I just can't say no to a good PB&J. So I'm gonna stick with peanut butter jelly. I'm agnostic if it's grape or strawberry, but creamy peanut butter is the way to go in my book.
Rajeev Sharma [00:20:31] Well, I would say, I think I speak for many people. I would have to say the pastrami sandwich at Katz Delia on Houston Street in New York City. I don't think anybody can compete with that. I think it's fantastic, but you have to be very hungry to have that big sandwich.
Stephen Hoedt [00:20:46] Being in Ann Arbor, Michigan, I have to say I can't go wrong with a Zingerman's Rubin.
George Mateyo [00:20:52] All right. Bon appetit everybody.
Brian Pietrangelo [00:20:54] Well, thanks for the conversation today, George, Steve, and Rajeev. We appreciate your perspectives. And thanks to our listeners for joining us today. Be sure to subscribe to the Key Wealth Matters podcast through your favorite podcast app. As always, past performance is no guarantee of future results and we know your financial situation is personal to you. So reach out to your relationship manager, portfolio strategist, or financial advisor for more information and we'll catch up with you next week to see how the world and the markets have changed. And provide those keys to help you navigate your financial journey.
Disclosures [00:21:27] We gather data and information from specialized sources and financial databases, including, but not limited to, Bloomberg Finance LP, Bureau of Economic Analysis, Bureau of Labor Statistics, Chicago Board of Exchange Volatility Index, Dow Jones and Dow Jones NewsPlus, FactSet, Federal Reserve and corresponding 12 district banks, Federal Open Market Committee, ICE Bank of America Move Index, Morningstar and Morningstar.com, Standard & Poor's, and Wall Street Journal and wsj.com. Key Wealth, Key Private Bank, Key Family Wealth, KeyBank Institutional Advisors, and Key Private Client are marketing names for KeyBank National Association, or KeyBank, and certain affiliates, such as Key Investment Services LLC, or KIS, and KeyCorp Insurance Agency USA, Inc., or KIA.
The Key Wealth Institute is comprised of financial professionals representing KeyBank and certain affiliates, such as KIS and KIA. Any opinions, projections, or recommendations contained herein are subject to change without notice, are those of the individual authors, and may not necessarily represent the views of KeyBank or any of its subsidiaries or affiliates.
This material presented is for informational purposes only and is not intended to be an offer, recommendation, or solicitation to purchase or sell any security or product or to employ a specific investment or tax planning strategy. KeyBank nor its subsidiaries or affiliates represent, warrant, or guarantee that this material is accurate, complete, or suitable for any purpose or any investor. It should not be used as a basis for investment or tax planning decision.
It is not to be relied upon or used in substitution for the exercise of independent judgment. It should not be construed as individual tax, legal, or financial advice. Investment products, brokerage, and investment advisory services are offered through KIS, Member FINRA, SIPC, and SEC-registered investment advisor. Insurance products are offered through KIA. Insurance products offered through KIA are underwritten by and the obligation of insurance companies that are not affiliated with KeyBank. Non-deposit products are not FDIC-insured, not bank-guaranteed, may lose value, not a deposit, not insured by any Federal or state government agency.